This is an extract from a recent report “World Energy Outlook 2025” published by IEA.
Key trends
In 2024, GDP per capita in China stood at USD 27 000 in purchasing power parity terms. China is set to graduate to high income status in 2025. Its economic growth thus far has been energy intensive: its GDP per capita is 10% above the world average, but its per capita energy consumption is 50% above. In this Outlook, GDP grows 3.5% per year to 2035. Output levels of established industries like steel and cement have peaked and continue to decline in projections: other energy-intensive industry products such as chemicals, petrochemicals and non-ferrous metals rise, but GDP is increasingly driven by services and high value-added manufacturing. This structural trend, alongside continued efficiency and electrification, leads to a peak and plateau in energy consumption in China. This marks an important trend break after years of rapid growth.
The structure of energy supply and consumption in China sees substantial shifts by 2035 in the STEPS. It already has one of the highest shares of electricity in final consumption in the world, and this rises from its current level of 27% to 35% by 2035. China adds on average 460 GW of wind and solar PV per year in the decade to 2035. When other renewables and nuclear are added in, low-emissions sources expand in total by around 600 TWh per year. By 2035, China will generate over 10000 TWh of low-emissions electricity, and its total energy supply from renewables and nuclear power is 10% larger than supply from oil and natural gas combined.
In the decade to 2024, China was responsible for more than two-thirds of global demand growth for oil. Its demand for oil declines by 2035 in the STEPS and CPS, and EVs have much to do with this trend. In 2024, nearly half of car sales in China were electric, of which twothirds were priced lower than their conventional equivalents. Their competitiveness sees electric cars rise to account for over 80% of sales by 2030 in the STEPS. The strong growth of high-speed rail also avoids oil demand. As a result, oil demand for road transport in China starts to decline. By 2035, its total oil demand is around 15 mb/d or 5% below today’s level. The CPS sees little additional upside for total oil demand in China by 2035, given the competitiveness of EVs and policy commitment to them.
China was responsible for nearly one-third of the global increase in demand for natural gas over the past decade. Demand continues to grow in both the STEPS and CPS but is limited by the electrification of end-uses. Industrial production in China is already highly electrified, 27% of industry energy consumption versus nearly 10% for gas. Electricity continues to gain ground in industry in the future. The transport sector sees increasing natural gas demand for trucks, over 25% of heavy-freight truck sales were natural gas fuelled in 2024, but it still accounts for a relatively small share of total gas demand. In the power sector, natural gas demand increases, but its growth potential is limited by competition with coal, pumped hydro and batteries, which play critical roles in balancing rising shares of variable renewables. The CPS sees a slightly higher upside for gas, with demand reaching 630 bcm by 2035, an increase of 8% on the STEPS.
Future of coal in China: growth ahead or peak on the horizon?
The massive electricity sector in China accounts for two-thirds of its coal demand. Industry is responsible for most of the remainder, but its demand for coal is declining: coal consumption in the industry sector peaked in 2014 and has since declined by 25%. Given that most industrial coal use is to produce cement and steel in China, the saturation of its housing and infrastructure needs means that demand for coal in industry will continue to decline. By 2035, coal consumption in industry in China is a further 20% below the 2024 level in the STEPS. Therefore, the electricity sector will determine the future of coal in China. In the last five years, China has added more renewables and nuclear generation capacity than the rest of the world combined, and solar PV and wind now account for 18% of generation. Despite this, coal demand for electricity rose by more than 25% from 2019 to 2024. As a result, coal consumption in the electricity sector reached 2250 Mtce in 2024 (65 EJ). This is more than the total energy demand from all sources combined – coal, gas, nuclear, oil and renewables – of any other country in the world, except the United States.
Economic growth in China has been very electricity-intensive in the post Covid pandemic period. Electricity consumption in the residential, industry and services sectors rose faster than economic activity in the 2019 to 2024 period. To integrate expanding shares of variable resources, China is investing in grids and dispatchable capacity, including batteries, pumped hydro and nuclear, as well as undertaking reforms to incentivise flexibility, and a more grid-friendly deployment of renewables. However, it also has over 200 GW of coal generation capacity under construction. The low capital costs of coal plants in China means that operating them flexibly to support renewables has much lower opportunity costs than in other markets. Even at a 30% capacity factor, its average levelised cost of coal generation at USD 80 MWh is lower than the levelised cost of gas at USD 110/MWh.
Therefore, the outlook for coal in China is shaped by a three-way race between booming renewables growth, rising electricity demand, and efforts to make the grid more modern and flexible. How this race plays out differs in the STEPS and CPS, but the long-term trends point to a peak and decline. In the CPS, electricity demand is higher than in the STEPS by 2035: the CPS sees a lower level of electrification, but it also sees fewer of the efficiency gains that dampen demand growth in the STEPS. Capacity additions of renewables average around 480 GW per year in the STEPS, compared to around 450 GW per year in the CPS. Curtailment rises in the STEPS, but efforts to add more flexibility through battery storage, pumped hydro and grid capacity keep the curtailment rate far lower than in the CPS. Even with the higher levels of electricity demand seen in the CPS, China’s huge renewables manufacturing capacity and the economic competitiveness of renewables lead to sufficient growth in renewables capacity to put coal into decline. As a result, total coal demand falls by around 20% to 2035 in the STEPS and by around 10% in the CPS.
Access the report here
